Axsome Therapeutics (AXSM) announced that it had entered into an agreement with Pfizer (PFE) for two products. One was the clinical and non-clinical data for reboxetine, which is the active ingredient in AXS-012 being advanced for narcolepsy. The other product is a phase 3 ready asset, now to be known as AXS-14, to be used for the treatment of patients with fibromyalgia. This latest deal is a good one for Axsome, because it is able to advance its narcolepsy drug while at the same time obtaining a new product. However, these are just additional products for a pipeline full of solid working drugs. Axsome has been able to report positive clinical data from multiple studies, each dealing with large target market indications.
Two Deals In Large Market Indications
As noted above, the announcement entails two separate deals. The first deal involves Axsome obtaining U.S. rights for clinical and non-clinical data, plus intellectual property rights, for reboxetine. Why this was such a crucial thing for the biotech to accomplish is because reboxetine is the active pharmaceutical ingredient found in its AXS-12 product. AXS-12 is in development for the treatment of patients with narcolepsy. It is a chronic sleep disorder in which patients experience an abundant amount of daytime drowsiness. In essence, sudden attacks of sleep. It is estimated that there are 3 million people worldwide with this disorder. However, it is important to point out that only about 25% of people with narcolepsy have been diagnosed and are receiving treatment for it. The global narcolepsy market is expected to reach $5.36 billion by 2026. The whole reason for acquiring non-clinical and clinical study rights was to avoid the cost of Axsome having to do all the leg work for AXS-12 on its own. This means, it can just focus on advancing its product towards a phase 3 study a lot sooner than anticipated. A phase 3 study is going to be initiated shortly this year.
The acceleration of development for AXS-12 wasn’t made possible only because of the recently acquired rights/data from Pfizer. Axsome was already ahead of the game for this indication on its own. It had already achieved positive results from the phase 2 CONCERT study treating patients with narcolepsy. In terms of the primary endpoint, it was met with statistical significance. It was noted that patients treated with AXS-12 had a statistically significant reduction from baseline in mean weekly number of cataplexy attacks compared to placebo. This primary endpoint was statistically significant with a p-value of p<0.001. Specifically, those treated with AXS-12 had achieved an average reduction of 14.6 cataplexy attacks compared to placebo only achieving a reduction of 2.6 cataplexy attacks. This was observed over a 2-week period. As you can see, those in the placebo group didn't fare very well and saw minimal reduction of attacks. Those who took Axsome's drug were able to see a huge reduction. What does that mean exactly for these patients? With less cataplexy attacks, a patient has more freedom to move their muscles and an improvement in quality of life (QoL). Other key endpoints that also met with statistical significance were:
- Reduction observed in excessive daytime sleepiness compared to placebo; p-value of p=0.003 for ESS and p<0.001 for inadvertent naps
- An improvement in cognitive function compared to placebo; p<0.001
- Patients were able to see an improvement in sleep quality; p=0.007 and sleep-related symptoms also compared to placebo
As you can see above, AXS-12 didn’t just reduce cataplexy attacks. It was able to help these narcolepsy patients with many other quality of life improvements that they suffer with as well.
The other part of the deal involves receiving U.S. rights for another drug known as esreboxetine, which is being developed to treat patients with fibromyalgia. Fibromyalgia entails muscle pain and tenderness throughout a person’s body. The global market opportunity for fibromyalgia is estimated to surpass $3.6 billion by 2026. This is another good indication for Axsome to go after. The drug to be developed for this indication is going to be known as AXS-14. In my opinion, there are two reasons why I feel this deal was a good one. The first is that the rights for esreboxetine in the United States doesn’t only involve the fibromyalgia indication. According to the agreement made, it can be used towards other indications as well. I believe this is a big positive, in that the biotech can expand the drug for other large market indications. There is one major reason on why I think this deal is transformational for Axsome. It all boils down to the fact that a huge chunk of the work had already been done by Pfizer. That is, Axsome retains positive results from both a phase 3 and phase 2 study, which used esreboxetine for the treatment of patients with fibromyalgia. Both completed studies had met the primary endpoint with statistical significance. That is, both studies met the primary endpoint with a p-value of p<0.001. This means Axsome is not risking a lot to take over this program.
However, this deal comes at a price of course. Pfizer is expected to receive approximately $8 million in Axsome stock. Not only that, but also Pfizer will be entitled to several other payments down the line like:
- Upfront payment of $3 million
- Potential to earn $323 million in regulatory and sales milestones
- Tiered mid-single to low-double-digit royalties on sales of future products
- Ability to negotiate future transactions involving AXS-12 and AXS-14
I believe that Axsome did well for this deal. Especially, since most of the deal is back ended. By that I mean that the only thing Axsome had to do initially was give an upfront payment of $3 million to Pfizer. Other than that, everything else won’t come until the products are either approved or marketed.
Axsome should be in good shape to meet those payments. It has already obtained positive results in several products in its pipeline. Plus, it had recently raised a lot of cash as well. The most recent positive study reported was the achievement of meeting co-primary endpoints in the phase 3 MOMENTUM study, using AXS-07 to treat patients with acute migraine. Specifically, those who had failed to have an adequate response with prior acute migraine therapies had responded well. Another set of positive data came out at the end of 2019. That is when the biotech noted it had met the primary endpoint in the phase 3 GEMINI study. This was a late-stage study using AXS-05 to treat patients with major depressive disorder. The NDAs for both AXS-07 and AXS-05 are anticipated to take place in the second half of 2020. This sets up two strong catalysts heading into the latter part of this year.
According to the 10-Q SEC Filing, Axsome Therapeutics had $43.6 million in cash as of September 30 2019. It believed that this would be enough cash to fund its operations into Q2 of 2021. However, after having obtained positive results with both AXS-07 in patients with acute migraine and AXS-05 in MDD, it needed to think about the two NDA filings expected in second half of 2020. Therefore, it chose to raise a total of $200 million in a public offering. It offered to sell 2.3 million shares of common stock at a price of $87 per share. With the addition of the recent offering in December of 2019, it has enough cash on hand to fund its operations for the next few years. It should be set for a while and likely won’t need to raise any additional cash at all this year. The only way this could possibly change is if another strategic transaction is considered. Other than that, I don’t believe there will be another cash raise this year.
Risks To Business
The biggest risk for Axsome would deal with the NDA filing for both AXS-05 and AXS-07. Both are expected to be filed in the second half of 2020, but there is no guarantee that the FDA will accept the filings. Having said that, AXS-07 for acute migraine was done as a Special Protocol Assessment (SPA) agreement with the FDA, so I don’t see the application itself being rejected. Still, it has to go under evaluation by the FDA. Another item to note is what was mentioned by the company itself. It noted that it believes the MOMENTUM study will be the only efficacy trial needed for approval for AXS-07. I think this will be the case. However, a risk to keep in mind is that the FDA may change its mind. In that case, it’s possible another study might end up being required. As far as AXS-05 goes, I think the NDA filing will be accepted. That’s because both the phase 2 ASCEND study and the phase 3 GEMINI study achieved highly successful results. This is rare, because typically across these types of depression studies, there tends to be a high placebo response. Which is why it is typical for companies exploring MDD to normally run two parallel phase 3 studies. This is done just in case one study has a high placebo response. In this instance, it wasn’t necessary because AXS-05 was able to outpace placebo with statistical significance in both studies. Then, it falls on the unmet need that exists. A majority of patients who are currently treated with antidepressants fail to adequately respond to treatment. However, the FDA also looks at the safety aspect as well. AXS-05 was well tolerated in both studies. There was only one serious adverse event, however, the investigator stated that it wasn’t due to treatment with AXS-05. With an effective/safe drug, in a population where 2/3 of depression patients fail to respond to current treatments, I believe the FDA will likely approve this drug.
Axsome Therapeutics has a host of products in the pipeline that have done very well in multiple studies. The ability to establish a deal with Pfizer allows it to accelerate its AXS-12 product into a phase 3 study this year. Based on data from the phase 2 CONCERT study, the drug should perform well in a late-stage study also. The deal with Pfizer also brought about a fibromyalgia drug into the pipeline, which had already been established in a few studies. This brings in AXS-14 for this patient population. I expect the stock of the company to climb higher as the second half of 2020 approaches. I believe the stock of AXSM will trade higher on the back of the two upcoming NDA filings expected in the latter part of this year. This includes both AXS-05 and AXS-07 for MDD and acute migraine treatment respectively. Based on success with multiple neurological drugs in the pipeline, along with several approaching NDAs, I view Axsome as an excellent buyout candidate by a big pharmaceutical. This is not something that is guaranteed to happen, but its prospects are highly enticing. It’s not every day you see a biotech like this nail every single study that it has reported on to date. Before the onslaught of positive data started rolling in for several neurological disorders, the stock traded at a low of $2.82 per share back in December 1, 2018. I believe that its stock will continue to climb once the company gets closer to filing both NDAs. Based on all these prospects, I view Axsome Therapeutics as a buy.
This article is published by Terry Chrisomalis, who runs the Biotech Analysis Central pharmaceutical service on Seeking Alpha Marketplace. If you like what you read here and would like to subscribe to, I’m currently offering a two-week free trial period for subscribers to take advantage of. My service offers a deep-dive analysis of many pharmaceutical companies. The Biotech Analysis Central SA marketplace is $49 per month, but for those who sign up for the yearly plan will be able to take advantage of a 33.50% discount price of $399 per year.
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